Germany is emerging as a green ally of Spain, but fiscal consolidation remains at the mercy of the future chancellor

Social democracy has won in Germany, but with much less forcefulness than the Pedro Sánchez government would have liked. The tight result of the electoral battle this Sunday opens the door to months of intense negotiations that will determine whether Angela Merkel’s successor will be the winning candidate of the SPD, Olaf Scholz, or that of the UCD, Armin Laschet.

A good part of the economic future of the countries of the European Union in a few key years to underpin the recovery from the pandemic, determine the decarbonization roadmap and return to normality in fiscal and monetary matters.

In this context, the future of the economic policy of the Spanish Executive may be very different with a coalition led by the Social Democrat Scholz, the Greens and the Liberals of the FDP, compared to that of a German Government led by Laschet together with the same partners. This latest tricolor coalition has been dubbed ‘Jamaica’.

In all scenarios, it is important to keep in mind that both Scholz and Laschet are figures close to Angela Merkel, since the first is his vice chancellor and finance minister under the agreement of the current coalition and the second, is his successor at the head of the Union.

This means that whoever wins the negotiations to form a government wins, German policy in the European Commission – chaired, in addition, by the German Ursula von der Leyen – should not undergo major changes after the results of this Sunday, although there will be important nuances that they will be very noticeable in the times of the execution of the policies.

Debt and deficit

With this, a recent analysis by Goldman Sachs economists warned that a “Jamaica coalition feel more committed to limiting debt diversions and guarantee a constant reduction in the debt-to-GDP ratios. ”Without a doubt, the presence of the liberals in this government led by the Union’s conservatives would make itself felt in this area.

So much so that, as the manager of the investment firm, Wolfgang Bauer, recalls, “dfter softening Germany’s stance on domestic fiscal discipline, a Scholz government would likely also be more tolerant of public finances in other parts of Europe“.

This would be a ball of oxygen for the objectives of Pedro Sánchez to end the legislature in 2023. We must not lose sight of the fact that in the European calendar the time between now and that date is vital because the European Commission has committed to reviewing the Stability Pact before that year. How this reform is oriented will depend on the speed that the Spanish tax consolidation has to take.

In this framework of negotiations, the vice president, Nadia Calviño, has had numerous meetings and conversations with Scholz, with whom he shares an armchair in ECOFIN, the Council that brings together the Ministers of Economy and Finance of the European Union.

Monetary policy and inflation

Whether the future chancellor is left-wing or conservative will also be decisive for Germany’s vote in the European Central Bank (ECB) at a critical moment, since inflation is on the rise throughout the Eurozone and Germans are terrified of price hikes because of their past.

How the ECB articulates its withdrawal of stimuli will also depend on the margin of the Spanish Government in this and the next legislature to be able to maneuver with its economic and social policy.

With a debt over GDP above 125% as a result of the inheritance of the 2008 crisis and that of Covid-19, Spain depends on interest rates dictated by Frankfurt and its purchases of public debt in order to sustain Treasury issues.

The debate will be intense and it should not be forgotten that the pandemic has already mobilized a hundred European left-wing economists – among them, some Germans and Spaniards – who opened the debate on a possible debt cancellation by the ECB to the most affected countries by the coronavirus in order to overcome this crisis.

Today it is a forgotten request, but that this debate is opened by certain economists is a shows how far it can influence in the European future that Germany is inclined towards a government of one color or another. The presence of liberals in both coalition scenarios it will be a firewall to this type of initiative.

Ecological transition

What the Germans have been clear on is that despite the CO2 rise and the threat of a tense winter by the politics of Russia with gas, they want advance decarbonization, that Merkel has defended in Brussels and at home, where her party has lost votes after yielding some of them to the greens.

The result of the greens has been worse than the polls showed a few weeks ago, but even so, it has guaranteed to be in either coalition that they form.

The ecological transition is assured in the European Union and it is possible that among the conditions imposed by the party leader, Annalena Baerbock, to lend her support to a chancellor is that of advancing with a greater determination and speed in the fight against emissions that harm the planet.

In this sense, for the fourth vice president, Teresa Ribera, it is important news that the greens of Baerbock They will have an important role in all fronts of the negotiations that are opened to form a Government in Germany.

In this area, we must not lose sight of the fact that the Spanish Government is asking the European Commission changes in CO2 rights to lower its cost and stop the escalation of light in Spain. And a Germany more determined by environmentalism can consolidate the European rejection of this Spanish request, which for the moment has not convinced Brussels. In any case, in the long term, Ribera and Baerbock seek the same goals.

Macron and Draghi

The German elections this Sunday were a long-awaited election date to see how the Germans valued the management of a pandemic in which the European Union has stepped on the accelerator of integration with decisions such as the joint purchase of vaccines or the mutualisation of bonds to finance Next Generation EU programs. But they are not the only elections on the horizon.

Also in France there will be elections in April 2022 And knowing that result will be vital to see how the axes of power are articulated in the European Union with a Franco-German tradition.

This will occur at a time when a highly respected figure in Brussels has emerged with force for the appointment of Mario Draghi as prime minister in Italy.

It is speculated on the possibility that in the coming months, the president of France, Emmanuel Macron, strengthen your ties with Draghi waiting to see who succeeds Merkel.

This movement would be interesting for Spain, since the reinforcement of a country of the South in the decisions of Europe after the Brexit It means having more support for many of the positions defended by the Sánchez Government on issues such as solidarity, taxation or the mutualisation of debt.

However, that the Spanish economy – fourth of the euro – can miss The opportunity to use its greater economic weight derived from the exit of the United Kingdom by being overshadowed by Draghi is also a risk that the Spanish Government should not lose sight of in this new ‘era without Merkel’.

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